Colombia Gains Investment Grade Credit Rating, Spurring Investor Confidence

Major Rises in Colombian Stock Exchange Reflect Improving Economic Climate. On March 16th, 2011, Standard & Poor’s rating agency improved Colombia’s debt rating to investment grade, prompting the largest stock rise in two years as investors’ signaled increased confidence in the emerging economy.

Colombia’s Colcap Index jumped 4.3 percent by Thursday afternoon, while the Colombian peso rose .7 percent against the U.S. dollar immediately following the upgrade. Colombia now enjoys the same credit rating as Brazil and Mexico, the two largest economies in Latin America. With a planned integration of the Colombian stock market with those of Chile and Peru by May, Colombia will soon be a part of the second-largest equity market in the region. Only Brazil’s exchange has a higher market capitalization.

S&P’s upgrade of Colombia’s credit rating to BBB-/A-3 is expected to attract a new class of investors, including large financial institutions whose policies mandate that bond purchases be investment grade. Colombia is also expected to gain access to global credit markets at lower interest rates, thus spurring investment and further boosting the emerging country’s economy.

S&P cited a favorable growth outlook and resilient economy in its decision, with President Juan Manuel Santos calling the upgrade a “certificate of good behavior” that reflects Colombia’s market-oriented economic policies and continually improving investment climate. Finance Minister Juan Carlos Echeverry noted that Colombia’s economy may now grow 6 percent in 2011, rather than the previous forecast of 4.5 percent.

The improved rating is the latest in a series of positive signs from Colombia’s economy, which began a turnaround in 2002 with the election of Alvaro Uribe, Colombia’s two-term president who initiated a security crackdown and increased investor confidence by implementing wide economic reforms. Uribe’s policies, which nearly halved the country’s homicide rate and increased foreign direct investment by 400% from 2002-2009, have been continued by President Juan Manuel Santos, who took office in August 2010. Santos has further spurred investor confidence through policies aimed at tackling the deficit, as well as further fiscal and political reforms.

In the World Bank’s 2011 Doing Business Report, Colombia was ranked the top country in Latin America for strength of investor protection. Colombia’s increasing oil production, now fourth-largest in Latin America, and its growing but under-penetrated consumer market have been cited as prime opportunities for investors this year.